Australian Wages Increase at Fastest Pace in 11 Years

By Jacob Greber

Aug. 13 (Bloomberg) -- Australian wages growth unexpectedly accelerated in the second quarter at the fastest pace in 11 years, underlining the central bank's concern that rising salaries may stoke inflation

Hourly pay rates excluding bonuses climbed 1.2 percent from the previous quarter, when they rose 0.9 percent, the statistics bureau said today in Sydney. The median estimate in a Bloomberg survey of 24 economists was for a 1 percent gain.

Reserve Bank of Australia Governor Glenn Stevens left the benchmark lending rate at a 12-year-high 7.25 percent last week and signaled he may cut borrowing costs for the first time in almost seven years as slowing economic growth cools inflation. Chinese demand for Australian commodities has stoked a mining boom that has pushed unemployment close to the lowest level in more than three decades.

``The door still appears open for a quarter-point rate cut by the Reserve Bank in early September,'' said Stephen Walters, an economist a JPMorgan Chase & Co. in Sydney. ``An even larger spike in wages could have raised concerns about cost-push inflation.''

The Australian dollar slid to 86.09 U.S. cents at 12:33 p.m. in Sydney from 86.74 cents before the report was released. The two-year government bond yield gained 4 basis points, or 0.04 percentage point, to 5.84 percent.

Consumer Confidence

The increase in the wage price index was the largest since the series began in 1997, according to the statistics bureau. A separate report showed today that consumer confidence jumped in August from a 16-year low.

Hourly rates of pay at mining companies rose 6.7 percent from a year earlier, the biggest annual increase among the 16 sectors surveyed by the statistics office.

Concern that a drop in unemployment to 3.9 percent in February, the lowest level since 1974, would stoke wages and inflation was a key reason Stevens raised the overnight cash rate target to 7.25 percent in March. He also boosted the benchmark in February, November and last August.

Consumer prices rose 4.5 percent in the second quarter from a year earlier. The central bank says inflation will peak at 5 percent in the final three months of 2008 before falling below 3 percent in mid 2010. Policy makers aim to keep annual price increases between 2 percent and 3 percent on average.

Economy Slowing

The wage price index advanced 4.2 percent from a year earlier in the June quarter, faster than the first quarter's 4.1 percent gain, today's report showed.

Wages may slow in coming quarters amid evidence Australia's $1 trillion economy is moderating as consumers slash spending in the face of higher borrowing costs and gasoline prices.

``The rate of growth in aggregate wages has remained fairly stable, despite the increase'' in inflation ``and generally tight labor-market conditions,'' the central bank said this week.

Economic growth will slow to 2 percent this year from 4.3 percent in 2007, the bank said on Aug. 11.

Wages may cool as companies cut workers. Qantas Airways Ltd., Australia's largest carrier, said last month it will fire 1,500 staff, and meat processing company Don Smallgoods will cut 640 jobs.

Business confidence in July held at the lowest level in seven years and job-vacancy advertisements fell for a third month, adding to signs employers will pare hiring as economic growth slows. The jobless rate has risen to 4.3 percent in July from 3.9 percent in February.

``Demand pressures in the economy now appear to be easing,'' the central bank said this week.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net